Delivering Impact in Challenging Economies: In Conversation with Jürgen Rigertink

On 24 May 2023, the Wheeler Institute for Business and Development in association with London Business School’s Social Impact Club and Finance Club hosted Jürgen Rigertink for a fireside chat.  Jürgen offered thought-provoking insights on how the European Bank for Reconstruction and Development (EBRD) is distinct in its investment strategy and, as a result, its investment portfolio.  The session was hosted by Elias Papaioannou, Professor of Economics at London Business School and Co-Academic Director of the Wheeler Institute, and moderated by Vania Stavrakeva, Assistant Professor of Economics at London Business School.  

The session commenced with a video that focused on EBRD’s impact on emerging economies in the last year. Some highlights include:

• The Bank invested up to €6.4 billion in the Green economy across its regions, including the financing of 200MW solar capacity in central Uzbekistan to power over 250,000 homes.
• One of the Bank’s 254 Inclusion projects last year was the training of 15 female bus drivers in Bakuriani, Georgia. Since the war started, the EBRD deployed over €1.7 billion to support Ukraine. Recently, the Bank financed a grain hub with a capacity of over 200,000 tonnes at the Slovenia-Ukraine border. The Bank enabled 851 businesses to go digital. One of the highlights of last year is the digitalisation of the Suez Canal Economic Zone.

Vania began the discussion by exploring the purpose of the EBRD to better understand why it differs from other global financial institutions such as the World Bank. Jürgen began by explaining the history of how the bank came to be – established following the fall of the Iron Curtain, the EBRD is the only bank in the world that promotes democracy. While it is similar to other banks such as the International Finance Corporation and the African Development Bank the EBRD is unique because of the policy dialogue it engages in alongside its investment as well as its private sector mandate. On the policy front – in Egypt, for instance, the EBRD supported the government to introduce regulatory controls in the space of renewable energy auctions. This successfully led to Egypt’s development of the largest solar park in Africa. On the EBRD’s razor focus on the private sector, the Bank targets 75% of its investment portfolio annually. The EBRD invests at market rates and is firmly market-oriented, with a firm focus on crowding in the private sector, not crowding out. Finally, the EBRD has an AAA rating from Fitch and Moody’s, and this stability enables a thriving business model and a healthy risk appetite.

With this in mind, Vania expressed curiosity as to what distinguishes the EBRD from other commercial banks. Jürgen emphasised that the EBRD has a higher-than-average risk appetite since it invests in markets that other banks would typically not. Vania then inquired about the geopolitical challenges that a bank like the EBRD faces given its investment philosophy. To this, Jürgen shared two valuable insights following the Bank’s successful Annual Meeting and Business Forum last month. First, the EBRD has committed to a limited and  incremental expansion into sub-Saharan Africa and Iraq. Second, for the first time in its history, the Board of Directors of the EBRD approved a paid-in capital increase.  The intentionality behind this lies in the ongoing conflict in Ukraine. Prior to the war, the EBRD was the biggest institutional investor in the country, investing approximately €1 billion annually. An increase in its capital means there is greater leverage to steer investments toward Ukraine. 

Moving to the ‘elephant in the room’, Jürgen was then asked to share insights on Russia’s position and placement as an EBRD shareholder. Jürgen revealed that following the Crimean War in 2014, the EBRD halted all new investments in Russia. This was a significant decision for them as at the time, Russia was the largest recipient of the EBRD’s investments, with approximately 33% of total disbursements.

Finally, the discussion turned to the methodology of choosing projects to invest in, given the EBRD’s unique investment philosophy. Jürgen explained simply, stating that after being present in certain nations for over three decades, the EBRD has become the default. While some governments and companies they engage with refer to the EBRD as ‘the tank’ or ‘bureaucratic’, they also see it as a huge seal of approval.

Opening up the floor to questions, there were several hands raised to understand more about Jürgen’s shared insights. The first question related to understanding concurrently (a) an explanation for why investment sentiment in Central and Eastern Europe and Ukraine has declined; and (b) what the EBRD is doing about it given their investment model.

Jurgen explained that given recent geopolitical tensions and the war on Ukraine, international investors have become more reticent to invest in the wider region, however this is beginning to improve. The EBRD invests in capital markets in more developed regions such as the Baltics, where it often acts an anchor investor which in turn leads to the crowding in of other investors, both local and international.

The next question related to the EBRD’s current exposure in Russia, which amounts to €900 million. Jürgen shared that the EBRD’s ‘principles have a cost’ as shortly after the conflict in Ukraine began, 90% of the EBRD’s exposure was marked down in its books which absorbed a loss of approximately €800 million.

The final question ended on a lighter note where Jürgen was asked to share a recent EBRD success story. Greece became an EBRD country of operation following the global financial crisis. The EBRD assisted Greece in weeding out their non-performing loan portfolio and when Greece’s contract term with the EBRD expires in a couple of years, they will graduate out of the Bank as they no longer need its assistance!